Trouble ahead? Easy money vs. Turkey 1:0

by Andreas Hoffmann

While the US, Japan and Europe slashed interest rates to unprecedented low levels, growth remains sluggish. Dealing with debt problems and supporting the recovery, the ECB provided money to quasi-finance the euro area problem children. Similarly the Federal Reserve is trying to jump start the economy and has been flooding markets with money so that they have no idea about what to do with all the liquidity.

But – wait – there are emerging markets. They are booming from Brazil to Turkey. Hence, investors target emerging market asset markets until there is something to gain at home. As a consequence Poland and Brazil just raised interest rates to fight inflationary pressure in goods and asset markets. On the contrary, while inflation picks up (expected rate for 2011 is 5.9 percent), Turkey LOWERED interest rates and raised reserve requirements.

This might seem odd?

Minimax It

by Gene Callahan

I’m always shocked by the idea that “the star has to take the final shot” in basketball. I just watched UConn, down one point with eight seconds left against Louisville, force the ball to Kemba Walker for what must have been about a thirty-foot shot. They had the ball in the hands of Shabazz Napier, a dynamic, fast point guard, who can drive, and they only needed two to win. When Napier saw Louisville was focused on Walker, why in the world wasn’t he given the green light to go to the basket?

Update on Government and Science

by Bill Butos

The New York Times of January 22 reports that the Obama administration has created a “billion-dollar government drug development center to help create medicines”  as part of the federally funded National Institutes of Health.

According to the article, its rationale is to undertake research leading to the commercial development of drugs that has mysteriously lagged in the U.S. The article makes no mention of the regulatory costs drug firms face.

Hayekian Credit Booms

by Andreas Hoffmann  

Currently there is an interesting discussion in the blogosphere on how it is possible that in Hayek’s Prices and Production framework consumption and investment can increase at the same time.  

In my opinion they cannot, or only very slightly, but this is not a problem!

Keynes Versus Hayek: An Empirical Matter

by Gene Callahan

Imagine that you saunter to the faculty cafeteria one day and sit down at a table already occupied by two theoretical physicists. You discover them deep in a debate. One says he has developed the wind-driven theory of leaf fall that portrays the path of a leaf, once it has left its parent tree, to be determined almost entirely by the wind. The other fellow has a gravity-driven model of leaf fall, which has it that it is gravity controlling the show. You are somewhat amazed by the fierceness of their debate, and by the fact that they just keep going on at the level of theory. Finally, exasperated, you ask, “Has it ever occurred to either of you that you are both right?

The Fed Has No Clothes

by Jerry O’Driscoll  

Philadelphia Fed President Charles Plosser gave a major speech on Monday at the Central Bank of Chile.  In the polite language of central bankers, the speech constitutes a systematic criticism of not only current Fed policy but of the Fed’s entire response to the financial crisis.

Toward a Libertarian-Progressive Alliance

by Roger Koppl

Ralph Nader recently appeared on Judge Napolitano’s “Freedom Watch” to herald the rise of a coalition between “libertarian conservatives” and progressives.  Within Congress, he says, both groups put principle above party.  The first episode in this new alliance will be cooperation on the whistleblower bill.

Let’s hope it happens!

The Good Sense of Ronald Coase

by Mario Rizzo  

Ronald Coase was recently interviewed by Wang Ning on the occasion of Coase’s 100^th birthday and to discuss the Ronald Coase Society in China. There is a good deal that is interesting about the interview, especially to those interested in China. However, here I’d like to point to a number of statements Coase makes of more general interest.

Inflation is Here

by Jerry O’Driscoll

 “Prices Soar on Crop Woes” reads the headline in today’s Wall Street Journal.

Global output of key crops such as corn, soybeans and wheat is down, and their prices are up, respectively, 94%, 51% and 80% from June lows. Today’s PPI report has wholesale prices up 1.1% in December after rising 0.8% in November. The Journal reminds us that in 2008 high food prices sparked riots around the world.

Meanwhile Fed officials tell us they don’t expect inflation.  It is not an issue of expecting inflation, but of observing it here and now.  The Fed prefers, of course, to look at “core” inflation rates, which are much lower. A former Fed colleague explained to me the central bank does so on the theory that people do not need to drive to work and can stop eating.

In our global economy, easy US monetary policy has thus far mainly affected commodity prices (including now food), real-estate in Asia and now broader price measures in Asia. It is implausible that the US would remain unaffected. Food, energy and clothing prices are all rising. I don’t think many households are presently gripped with a fear of deflation.

In the Mises/Hayek theory of economic fluctuations, the transmission of monetary shocks works through producer prices and incomes, and only later consumer prices. No measure of consumer prices, and certainly not a subset of consumer prices, is an adequate gauge of inflation.

Sowing and Reaping: The True Sickness of Society

by Mario Rizzo  

There has been much moaning, even before the Arizona shooting incident, about why “we” cannot be civil in our political discussions and why political parties cannot work together for the common good. 

Most of this is pure logorrhea.

There are some simple facts the commentators cannot or will not face. The reason we cannot have a coherent, comprehensive plan to solve the political and economic difficulties of the federal government (and of the state governments) is that people do not have a coherent, comprehensive hierarchy of values beyond the basics of social order.